MTN Nigeria’s share price posted a year-to-date gain of 9.14% at the end of 2022 a performance that trailed the All Share Index performance of 19.98%.
The company started the year at a share price of N185 and closed at about N215 representing a price-to-earnings ratio of 12.55x. At its peak last year, MTN sold for as high as N270/share
On paper, it will seem that the company’s current share price of around N215 per share is right about valued appropriately if what you are factoring is its trailing earnings. But factor in MTN’s growth trajectory and the story might be somewhat different.
MTN Nigeria has a strong balance sheet, records of consistent growth in earnings, and impressive return on equity. The company is currently the 3rd most valuable stock on the stock with a market capitalization of 4.38 trillion, which is 15.7% of the entire Nigerian Stock Exchange equity market.
Extracts from its nine months of 2022 earnings reveal MTN Nigeria Communications, followed by Dangote Cement and Zenith Bank in the banking sector, are the most profitable companies on the Nigerian Exchange Limited (NGX).
Earnings Trend: MTN Nigeria has built up an impressive earnings history. Over the past five years (2017-2021), earnings compounded annual growth rate (CAGR) stood at 38.5%. This means it has increased its profits by an average of 38.5% yearly for the last 5 years. For example, MTN’s revenue was N81 billion in 2017 compared to N298.6 billion in 2021.
Latest Results: Back in October 2022, it reported 9M earnings on-year growth of 22.12% to N269.039 billion for the first nine months of 2022. This suggests it is already on track to surpass its 2021 performance.
The company’s reported 9M earnings per share were 13.3/share, a 23% on-year growth compared to N10.82 reported a year ago.
The company’s trailing twelve months’ earnings per share is currently N2.53 per share higher than the earnings per share reported in the full year of 2021.
The 9M 2022 earnings growth was on the back of 20.71% year-on-year growth in revenue to N1.456 trillion on account of 49.98% growth in data generating-revenue segment to N549 billion in the nine-month period of 2022 from N366 billion in the nine-month period of 2021.
In terms of returns, it recorded an outstanding return on equity of 142% compared to the industry’s 31.2%. Though that is skewed due to their high level of leverage with debt at about three times its equity. However, its profits are almost 5x its interest payments.
Notwithstanding, the company faced macroeconomic and peculiar sectoral challenges. The telecom industry experienced macroeconomic challenges, especially the depreciating naira value. Specifically, MTNN on account of the depreciating naira value reported a 289% boost in net foreign exchange losses, which drove its finance costs by 39.05% in the nine-month period of 2022 to N145.7 billion from N104.7 billion in the corresponding period of 2021.
However, the outlook remains favorable for the company. The renewed strength in the third quarter brightened the prospects for a full-year turnover expectation in the region of N2 trillion as data services steadily continue to grow to lead revenue growth. We forecast earnings to grow by 38% over the year, faster than the wireless telecom industry average growth rate of 15.3% and the NG market forecast growth of 16.3% per year.
Projections for MTN Nigeria: At N215.00, the telecom company is trading at a trailing twelve months price-to-earnings ratio of 12.5x, which is below the peer average ratio of 24.2x and global wireless telecom industry average of 14.6x.
Nairametrics projects around N20.23 for its earnings per share, which at a multiple of 12.5x could see the share price valued at N252.83. Also at a price/earnings-to-growth (PEG) ratio 0.3x below 1x, the telecom stock is considered undervalued.
The company’s share price delivers a dividends yield of 6.59% (N14.17 DPS), which is higher than the bottom 25% of dividend payers in the NG market but low compared to the top 25% of dividend payers in the NG market (8.55%). The company’s dividend yield is forecast to reach 8.6% (N18.439 DPS) by December 31, 2023.
MTN is not one of those stocks you expect to give you an inflation-beating dividend. But its business model, governance, and solid earnings growth potential will always make it an attraction for the bulls. The bears may have had the better of 2022 but we expect the bulls to take control of MTN’s 2023.
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